AMRON-SARFiN Report 2/2024
This was an extremely interesting period for analysing the behaviour of housing market participants after disruptions caused by the boost provided by the ‘2% Safe Loan’ programme. This programme pushed buyers to make quick, not always well-considered decisions to purchase whatever was available. Some are still waiting for the promised zero-interest housing loan announced in the draft law on housing loans #forStart. However, the number of people encouraged to buy their dream home is growing due to increasing creditworthiness, more attractive interest rates offered by most banks, now below 7%, and the reappearance of discounts or bonuses from some developers, such as free parking spaces. Especially now, with no need to rush, buyers can make more advised choices while hoping for a rate cut by the Monetary Policy Council within the next two to three quarters. A normally functioning housing market typically reacts to economic stimuli with a few quarters’ delay. The behaviours of market participants are usually the result of consumer or investment decisions made at least six months earlier. That’s roughly how long it takes for buyers to decide, secure financing, choose a property, and finalize the transaction. Unfortunately, the ‘2% Safe Loan’ programme introduced significant disruption. There was no time for thoughtful decision-making, especially when it came to choosing that perfect property. The main consequence of this disruption was a significant increase in housing transaction prices.
A decline in banks’ lending activity in the second quarter of 2024 was, therefore, expected compared to both the first quarter of 2024 and the last quarter of 2023. However, it is worth mentioning that both the number and value of loans granted from April to June this year exceeded the results of the third quarter of 2023, when the ‘2% Safe Loan’ programme was launched.
The 45 434 mortgage agreements concluded in the second quarter of this year were by 29.56% lower than in the first quarter of 2024, but by 47.52% higher than in the corresponding period of 2023, with an increase in their value by as much as 69.19%. The total value of mortgages granted in the second quarter of this year amounted to PLN 19.118 billion.
We are slowly approaching a reversal of the trend of shrinking active housing loans portfolio. The decline in the number of active mortgage agreements to the level of 2.279 million amounted to only 0.5% in the second quarter. However, the trend has already reversed in terms of total value of active mortgage loans. For the first time since the beginning of 2022, total mortgage debt increased slightly by 0.89% to PLN 488.306 billion. This clearly meant a weakening of the early repayment trend of loans granted in previous years, with a systematic increase in the average value of a housing loan, which in Q2 2024 reached PLN 423 336. Year-on-year, an increase by 15.62% was noted (nominally by over PLN 57 thousand). This was the result of rising prices as well as improved creditworthiness of borrowers.
The return of the housing loans market to normality was also evidenced by the fact that after six quarters of constant, dynamic increase in the share of new housing loans with LtV ratio above 80%, there was a significant decline in the number of such loans from 38.3% in the previous quarter to 26.61% in analysed period. This increase in borrowers’ own contribution also confirmed the improvement in creditworthiness of new borrowers.
The value of new housing loans in the first half of this year amounted to almost PLN 46 billion, with a total number of 110 thousand loan agreements. This supports our forecast presented when summarizing the first quarter of this year, that even without another government programme like the #forStart Loan, a result of over 180 thousand loans with a total value exceeding PLN 80 billion is possible to achieve in 2024. Of course, if the government confirmed in a month or two that another loan stimulus will be launched in early 2025, some potential borrowers might postpone the decision to buy real estate this year, which could significantly reduce demand for mortgage loans, especially in the last quarter of this year.
Another indicator of the solid financial standing of new borrowers is the shortening of the maturity period for newly granted loans. In comparison to the results noted in the first quarter of 2024, the share of loans with a maturity between 25 and 35 years decreased by 2.71 pp.
The quality of mortgage portfolio also improved. In the second quarter of 2024, the share of non-performing housing loans in the mortgage portfolio accounted for 1.92%, which meant a decrease by 0.22 pp in comparison to the previous quarter. At the end of June 2024, the share of PLN housing loans with default on payments accounted for 1.44%, i.e. less by 0.03 pp. The share of non-performing loans in CHF amounted to 14.02% of the portfolio and therefore decreased by 2.00 pp comparing to the previous quarter.
According to the latest data published by Statistics Poland, the housing construction sector has been experiencing a revival for over a year. Moreover, this was a very dynamic revival, with developers’ willingness to start new projects increasing by more than half. From July 2023 to June 2024, developers started construction of over 147 thousand new apartments, which was over 60% more than if we had done a similar summary a year earlier. In the first half of 2024, developers completed 58 502 apartments, which was by 9.61% less than in the same period last year. However, the number of constructions starts was by 68.05% higher (80 591 apartments), and the number of dwellings with construction permits obtained by developers amounted to 101 204, i.e. by 37.20% more than in the first half of 2023. Stabilizing construction costs may also influence the increased willingness to start new projects. The prices of building materials were stabilizing more favourably, although labour costs remained under pressure from overall wage growth. Nevertheless, the growth rate of construction costs has slowed several times over the past few quarters.
Transaction prices of dwellings in the largest Polish cities were still increasing, although quarterly growth rates were much lower in most locations than in previous quarters. In the second quarter of 2024, significant price increases were recorded in Wroclaw (6.55%) and Cracow (5.71%). The average transaction price in Poznan increased by 3.04%, and in Warsaw by only 2.08% in comparison to the first quarter of 2024. In other analysed cities, price increases did not exceed 1%. Some housing market analysts even predict a coming decrease in housing prices, but so far, price reductions were limited to offer prices.
The annual price growth triggered by the launch of ‘Safe Loan 2%’ programme in the second half of 2023 reached 20% across all cities, with Cracow, Wroclaw, and Poznan seeing nearly a 28% increase in housing prices.
On the other hand, rent rates increases in the second quarter were minimal, ranging from 1% to 1.5%, and in Wroclaw even a decline by 1.76% was recorded. The average rent rate for an apartment in Warsaw amounted to PLN 2 243, i.e. by 0.76% more than in the previous quarter.
Regarding prices, I would like to highlight the ongoing work at the Ministry of Economic Development and Technology on the Housing Transaction Data Portal (‘DOM Portal’). The banking sector has critically evaluated the real estate information market since the beginning of Poland’s economic transformation. That is why, the Polish Banks Association decided to create an interbank, nationwide real estate database over 20 years ago. At the beginning of August this year, the Polish Banks Association presented to the Minister of Economic Development and Technology a proposal to utilize the banking sector’s experience in creating a nationwide real estate database and even to use some functionalities of AMRON System in the work on ‘DOM Portal’. We are convinced that using our experience in this project, as well as the resources and functionalities of AMRON System, can significantly speed up the work on creating ‘DOM Portal’ while reducing budget expenditures for this purpose. The real estate data collected in AMRON database corresponds to 99% of the scope of data expected to be collected and processed by ‘DOM Portal’. AMRON database exceeds 4.2 million records. The National Bank of Poland, the Polish Financial Supervision Authority, the National Prosecutor’s Office and the Police, as well as over 600 business entities active on the real estate market, including the 25 largest commercial banks and 391 cooperative banks, have been using the AMRON System for many years.
We have presented the Minister with a proposal to meet the government’s information and reporting needs on the real estate market, as well as to provide consumers with reliable information on residential transaction prices using the AMRON System’s resources and functionalities.
Building the database infrastructure is a relatively minor issue. The real challenge is obtaining complete, standardized, and reliable data describing the real estate transactions, particularly data that details the features and parameters of properties. The very low quality and minimal description of properties in notarial deeds of sale is the problem. Therefore, we have submitted a proposal to Deputy Prime Minister Krzysztof Gawkowski and to the Minister of Justice to implement a unique initiative to organize and digitize the real estate information market by introducing the Electronic Property Card (EPC) into the legal order and common use. The adoption of Polish Banks Association proposal would be a breakthrough in organizing the real estate information market. It would contribute to digitization of Polish administration and economic transactions, increase transparency if real estate market and minimize opportunities for abuse in this area. Additionally, it would ensure standardization and unification of property information across various public and industry registers, eliminate transcription errors and delays in transaction registration, which are currently caused by the manual entry of the same data into multiple or even dozens of registers by the staff of institutions maintaining these registers – with updates occurring in real time. Additionally, it will standardize and unify the scope of property information across various public and industry registers, eliminate clerical errors, and remove delays in transaction registration, caused by today’s practice of rewriting the same data into several or even dozens registers by employees of institutions maintaining these registers. Updates would take place in real time.
Returning to the housing and mortgage market, we maintain our earlier forecast of banks’ lending activity in 2024. However, how the housing loans market will look like in the second half of 2024 largely depends on whether and when the government provides clear confirmation about the feasibility of launching a new borrower support programme at the beginning of 2025. Another key factor will be whether growing expectations for lower interest rates, particularly in the U.S., in response to the risk of global recession are met, and if this will be followed by other countries, including Poland. These expectations are already influencing interest rate futures contracts, not just in the U.S. but also in Poland.
Regardless of the future of #forStart loans, we hope to initiate discussions on long-term systemic solutions that go beyond a single government term, because the Polish housing market needs a coherent, comprehensive and – most importantly – long-term housing programme. The 20th jubilee edition of the Housing Finance Congress, organized by Polish Banks Association on October 24-25, 2024, will be an opportunity for discussion, also with government representatives. We look forward to a constructive dialogue.
Jacek Furga,Ph.D.
Head of AMRON Centre
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